By Nigam Arora
We all want a safe and effective vaccine for the coronavirus. Certainly one or more effective vaccines will be good for the economy.
However, the stock market is detached from the economy. So here is the key question for investors: “How will the stock market react to the news of vaccines, not immediately but over a period of time?”
• It has reversed.
• It is still continuing to levitate.
• Tesla /zigman2/quotes/203558040/composite TSLA +4.03% stock, an indicator of speculative sentiment, has lost momentum. It reached a high of $1,794.99 but has since moved down to $1,550.30. This is a big move.
• Amazon /zigman2/quotes/210331248/composite AMZN +0.05% , the poster child of stocks benefiting from the coronavirus-led economic lockdown, has fallen from $3,344.29 to $2,991.12 as of this writing. This is a big move and shows loss of momentum, just like Tesla stock has.
• Netflix /zigman2/quotes/202353025/composite NFLX -1.48% stock, the beneficiary of people staying at home watching more video, has moved down since the reversal day from $575.37 to $490.89. Again, this is a big move showing loss of momentum.
• The same is true of fast-growth companies Zoom Video /zigman2/quotes/211319643/composite ZM +2.20% , Fastly /zigman2/quotes/212251938/composite FSLY +1.87% , Peloton /zigman2/quotes/208035743/composite PTON -1.63% and DocuSign /zigman2/quotes/205992027/composite DOCU -4.21% .
• Among popular tech stocks, Apple /zigman2/quotes/202934861/composite AAPL +2.77% and Microsoft /zigman2/quotes/207732364/composite MSFT +1.58% are also showing loss of momentum but to a lesser degree. Alphabet /zigman2/quotes/205453964/composite GOOG -0.09% /zigman2/quotes/202490156/composite GOOGL +0.09% and Facebook /zigman2/quotes/205064656/composite FB +1.28% have been more resilient to momentum loss.
• Moderna /zigman2/quotes/205619834/composite MRNA +12.20% , AstraZeneca /zigman2/quotes/200304487/composite AZN +1.43% , Pfizer /zigman2/quotes/202877789/composite PFE +2.00% , BioNTech /zigman2/quotes/214419716/composite BNTX +2.00% , Novavax /zigman2/quotes/202614340/composite NVAX +3.53% and Inovio Pharmaceuticals /zigman2/quotes/202993817/composite INO +8.00% — all coronavirus vaccine stocks — have gained momentum.
What does it mean?
The conclusion to be drawn from investor behavior so far is that popular stocks are stretched to the upside. When there is good news about a vaccine, popular stocks may lose more momentum and fall over a period of time.
Don’t let the initial reaction fool you. Initially, money will flow into futures and ETFs, boosting stocks. Main Street stocks that have been hurt may benefit. These include Carnival /zigman2/quotes/202325446/composite CCL -4.95% , American Airlines /zigman2/quotes/209207041/composite AAL -2.47% and Cheesecake Factory /zigman2/quotes/207909209/composite CAKE +6.21% . As a note of caution, these stocks should be bought only on dips in buy zones, when signals are given or on other news in a properly diversified portfolio. Please read, “Here’s the secret sauce to handle the stock market’s election and virus fears.”
Disclosure: Arora Report portfolios have positions in Apple, Amazon, Alphabet, Microsoft and Facebook. Nigam Arora is the founder of The Arora Report, which publishes four newsletters. He can be reached at Nigam@TheAroraReport.com.